Materi Workshop Legal Due Diligence (LDD) yang di selenggarakan oleh EMLI Training. Materi di sampaikan oleh Bapak Dendi Adisuryo, beliau adalah Partner at ADCO Attorneys at Law.
2. AGENDA OF DISCUSSION
Introduction to acquisition
Acquisition deals flow
Roles of legal due diligence
Workflow of legal due diligence
Preparing due diligence checklist
Key areas for legal due diligence review
Frequent findings
Preparing legal due diligence report
How LDD Report will affect the deal?
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3. INTRODUCTION TO ACQUISITION
WHAT’S THE ACQUISITION?
Acquisition may be defined as an act of one enterprise of acquiring, directly
or indirectly of SHARES, voting rights, assets or control over the
management, of another enterprise
Acquisition is a legal action taken by a legal entity or an individual to take
over shares in a company which will change the control of the Company
(Article 1 (11) of Company Law)
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4. ACQUISITION RATIONALE
Enhance, build and preserve markets
Achieve rapid business growth
Secure new resources
Develop globally-competitive companies
Establish a new business unit
Supporting tools for core business unit
INTRODUCTION TO ACQUISITION
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8. 8
ROLES OF LEGAL DUE DILIGENCE
Obtaining objective information
Identifying legal risks
Arguments for negotiations
Transaction structuring
Determining conditions precedent to transaction
Determining holdback amounts in transaction
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LEGAL DUE DILIGENCE WORKFLOW
START UP
Management
Meeting
Information
Gathering
Analysis The Report
Term of
Reference
Initial
manageme
nt meeting
Site visit
Reassure
management that
LDD will not
disrupt
commercial
activities of the
target
Establish timings
and reporting
Review initial
proposed
transaction
structure
Obtain person in
charge in the
data room
Gather info from
dataroom/documen
t provided
Gather info from
internet and other
resources
Close liaison with
the target’s official
Gather info from
financial/environm
ent/technical
counsel
Obtain infofrom
government
agencies
Site Visit
Legal issues
Legal
consequences
Legal Solution
Clear, easily-
read document
Address what
the commercial
people need to
know
Timely manner
Good news is
nice, but the
truth is the aim
Presentation to
client
Q & A
Next stage of
the transaction
Post Report
11. Obstacles to Due Diligence in Indonesia
No sophisticated public data base
Reluctance to present full package of documents
Delays in gathering and presentation of documents (from usually remote
sites)
Differences: so many interdisciplinary issues (e.g. forestry, transportation,
overlapping, counterfeited documents
More important than in developed countries – not purely a data room
exercise
Legal uncertainty – clear title (in licenses, buildings, property)
Lawsuits: difficult to access
Representations and warranties may be useless because sellers are often
“big” local person
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13. Corporate legal standing
Establishment
Capital structure (eg. change of capital structure, minimum capital requirement
for PMA Co)
Shareholding composition
Company management
Authorities of management and corporate approval
Domicile of the company
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
14. Operating Licenses
Validity
Compliance
Possibility of license revocation
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
15. Third Party Comitment
Sale agreement
Exclusivity, duration, committed volume, price adjustment, payment methode, quality
and quantity determination, exit clause, Exclusifity, commited amount, price
determination, pre shipment payment,
Services / contractorship agreement
Scope of work, service fee, fall and rise, exclusivity, evaluation based on performance
indicator, parties responsibility
Joint Venture/Joint Operation/ Shareholder agreement
Scope of cooperation, parties’ responsibilities, rights of first refusal, quorum, minority vs
majority roles, tag along vs drag along, additional investment and capital injection, pre
agreed matters, changes of control
Financing agreement
Indebted amount, security, prepayment, change of control, covenants, breach of
agreements, debt reschedule / restructurisation
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
16. Assets
Types of assets
Ownership title
Land compensation?
Encumbrances
Property rights
List of property – owned, occupied, leased
Supporting documents of ownership, occupation or leasing
Physical checking to BPN – Lurah for land properties
Appraisal or valuation of assets
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
17. Disputes
Court searches in PN, PTUN, PHI, P Niaga, BANI, PN Jakarta Pusat
Court search cannot reach potential disputes
Disputes in international arbitration forum?
Court search – must be authorized by the targeted company through a
formal PoA
Cost may vary, depends on where, who, how big is the company, time
frame
No full reliance to court search result
Potential dispute
Always asked for indemnity in the definitive agreement
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
18. Environment
AMDAL Documents / approval
AMDAL requirement – time line
RPL – RKL documents
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KEY AREAS FOR LEGAL DUE DILIGENCE REVIEW
19. Corporate Matters
The shares have been transfered to other parties
Unreported amendment to the AoA
Lack of deed of shares transfer
Absence of spousal consent
Lack of corporate approval for certain transaction (eg. Loan, establishment of
subsidiary, assets encumbrance, assets divestment)
Absence of shareholder registry
Absence of annual general meeting of shareholders
No BoD for certain period of time
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FREQUENT FINDINGS
20. FREQUENT LDD FINDINGS
General matters
Discrepancy in assets ownership (eg. Land)
No financial statement
Liabilities in the financial statement
disputes
Target company has not submited any annual tax return
Lack of compliance documents
Wrong business model (legally)
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21. FREQUENT LDD FINDINGS
Contractual
Long-term contract with onerous provisions and no possibility to adjust
Contract with its affiliated party
Contracts with no-perfect provisions
Agreement to pay “royalty” to un-disclosed party
Exclusife offtake agreement or marketing agreement
Business contract contradicts with the laws and regs
One-sided services agreement
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22. PREPARING LEGAL DUE DILIGENCE REPORT
Golden rules:
Findings
Legal consequences
Proposed action
A glancing through a LDD Report
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23. HOW LDD REPORT WILL AFFECT THE DEAL?
Subtance of the report:
Information of the target company
Risk identification
What to do with the risk:
Transfer of risk (eg. Insurance, seller)
Limit the risk
Absorb the risk
Reject the risk
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24. HOW LDD REPORT WILL AFFECT THE DEAL?
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Buyer Seller
Get discount as much as possible Get selling price as high as possible
Calculate future / contingent risks Release from any future risk
Get full representation and warranties Minimize representation and warranties
Maximize indemnity Minimize indemnity
25. HOW LDD REPORT WILL AFFECT THE DEAL?
Drafting acquisition agreement
Definitions and Interpretation
Sale and Purchase
Consideration
Condition
Pre-Completion and Post-Completion Obligations
Completion
Warranties
Indemnities
Share Purchaser’s Undertakings
Security for Claims
Share Purchaser’s Rights to Terminate
Confidentiality
Governing Law and Dispute Resolution
Notices
Miscellaneous
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27. Legal Due Diligence for Acquisition Deal
in Indonesian Mining Projects 27
DendiAdisuryo
Practice Description
He specializes and has practical experience in energy and mining projects
and the banking/finance sector. He also has broad experience in
assignments related to foreign capital investments and corporate
restructuring.
Lawyer/Consultant Biographies
Please contact us if you have any questions regarding our firm:
ADCO Attorneys at Law
Setiabudi Building 2 6th Floor , Unit 605C
Jl. HR. Rasuna Said, Jakarta 12920
Jakarta Selatan - Indonesia
Telp: +6221-52903034
Fax: +6221-52903035
email: dendi.adisuryo@adisuryo.com